Scope of Cargo Insurance Coverage

The type of coverage that the insured can obtain ranges from the minimum cover provided by the basic policy commonly termed as S.G. Policy (Ships and Goods Policy) to the maximum protection of “All risks whatsoever”. The S.G. Policy covers the loss or damage to goods (total or partial) arising from the perils of the sea. As the goods in transit are exposed to other extraneous perils such as theft, pilferage, leakage, shortages, etc, the scope of the cover provided under the S.G. policy has to be enlarged by introducing a number of Institute Cargo Clauses (ICC) such as Free from Particular Average (FPA), With Average (WA) and All Risks (AR). Furthermore, certain types of cargo require special clauses, commonly termed as trade clauses e.g., Rubber Clause, Raw Sugar Clause and Timber Trade Federation Clause.

The All Risks Clause provides coverage for all perils, excluding losses or expenses proximately caused by delay, inherent vice or nature of the cargo. The coverage for shipments by air is as per the Institute Air Cargo Clauses (All Risks) (excluding sendings by post), which differs from the other clauses to cater for the particular need by the mode of transport. The important things to note is that these clauses are so designed as to provide cover supplemental to the basic cargo insurance policy (S.G. Policy).

It should be pointed out that due to difficulties encountered by the commerce and trade in the interpretation of the archaic wordings of the S.G. Policy, the Lloyd’s Underwriters Association, in consultation with the Institute of London Underwriters and other interested parties, has replaced the S.G. policy with a simple document and a corresponding set of a new Institute Cargo Clauses – ‘A’, ‘B’ and ‘C’ in place of ‘All Risks’, W.A. and F.P.A. Clauses.

Clause A covers all risks of loss or damage to the assured matter subject to the following exclusion:

Willful misconduct of the Assured; ordinary leakage, loss in weight or volume, wear and tear; unsuitable packing; inherent vice; delay; insolvency or financial default of owners, managers, charterers or operators of vessel; atomic weapons of war and radioactivity.

Clause B covers loss or damage to the assured matter reasonably attributable to the following risks:

Fire; explosion; stranding; sinking; grounding; overturning; derailment of land conveyance; collision or contact of vessel with any external object other than water; discharge of cargo a t pot of distress; general average sacrifice; jettison; washing overboard; entry of sea, lake or river water into vessel, craft, hold, conveyance, lift van or place of storage; total loss of package lost overboard or dropped during loading or unloading; and earthquake, volcanic eruption or lightning.

The exclusions under B clause are similar to those of Clause A with the addition of deliberate damage to or destruction of assured matter.

Clause C covers loss or damage to the assured matter reasonably attributable to the following risks:

Fire; explosion; stranding; grounding; capsizing of vessel; overturning; derailment of land conveyance; collision or contact of vessel with any object other than water; discharge of cargo at port of distress; general average sacrifice; and jettison.

The exclusions under C clause are identical to those of Clause B. In addition, the losses arising from the following risks are not covered:

1. Earthquake, volcanic eruption or lightning
2. Washing overboard
3. Sea, lake or river water damage
4. Total loss of any package lost overboard or dropped whilst loading on to or unloading from vessel.

The loss or damage caused by war and strikes, riots and civil commotion (SRCC) is also excluded under all the three clauses mentioned above. However, traders can obtain cover against losses arising from war and SRCC risks on payment of an additional premium.

It is important to remember that war risks are covered only when the cargo is water-borne that is it is not in force whilst the cargo is on land. The cover starts only when the cargo is loaded on board the vessel and ceases as soon as it is discharged from the vessel at the final port or after the expiry of 15 days counting from the midnight of the day of arrival of the vessel at the final port of discharge, whichever is earlier.